ADG Insights Bribery and corruption enforcement landscape February 2019 - Hogan Lovells
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ADG Insights Bribery and corruption enforcement landscape February 2019
2 Hogan Lovells
Introduction
Despite some predictions that bribery and
corruption enforcement by U.S. enforcement
agencies would significantly slow under the
Trump administration, it continued in 2018 at a
roughly steady pace and global enforcement
continued to accelerate. U.S. authorities have
recently cooperated with enforcement officials in
the United Kingdom, France, and other European
countries. A significant cultural change is also
underway in Latin America where Brazil's Lava
Jato (Car Wash) enforcement operation has
convicted more than 200 people to date and
Mexico recently elected President Andrés Manuel
López Obrador in a landslide after he made
curtailing corruption a central campaign issue. In
Southeast Asia, there have been some legislative
reforms and enforcement successes and
Singapore authorities continue to be particularly
committed to fighting corruption. However, a
serious commitment to curtail corruption and
bribery is not yet universal and enforcement
efforts vary significantly between jurisdictions.
Although the enforcement landscape is
constantly evolving, anti-corruption efforts
continue in the United States and abroad.
Companies operating in the Aerospace, Defense,
and Government Services (ADG) industry sector
should continue to track developments that may
shape their compliance practices. To aid in that
effort we summarize below recent policy changes
implemented by the U.S. Department of Justice
(DOJ). In addition, we report on the recent
resolution of a number of enforcement actions
that involved ADG companies.
ADG Insights: Bribery and corruption enforcement landscape February 2019 3
Revised DOJ policies take hold acquisition or if they learn of it after the acquisition is
complete.
Deputy Attorney General Rod Rosenstein announced
The DOJ made a number of policy announcements this past additional changes to DOJ policy that relate to cooperation
year that will shape corruption and bribery enforcement under credit in a November 29, 2018 speech.4 As memorialized in the
the Foreign Corrupt Practices Act (FCPA). To a large degree, 2015 memo titled "Individual Accountability for Corporate
the new policies reflect the DOJ's continued commitment to Wrongdoing" (known as the Yates Memorandum), the DOJ
encourage corporate cooperation and self-disclosure, to hold has been requiring that "to be eligible for any credit for
culpable individuals accountable for criminal conduct, and to cooperation, a company must identify all individuals involved
cooperate with other law enforcement agencies in the United in or responsible for the conduct at issue, regardless of their
States and abroad. position, status or seniority, and provide to the Department all
facts relating to that misconduct." Rosenstein affirmed that
First, the DOJ incorporated the FCPA Corporate Enforcement
"[f]ocusing on individual wrongdoers is an important aspect of
Policy (first announced in November 2017) into a
the Department's FCPA program" and noted that the DOJ has
comprehensively revised "U.S. Attorneys' Manual" (renamed
announced charges against more than 30 individual
the Justice Manual).1 This policy aims to provide sentencing
defendants and convicted 19 individuals over the past year.5
leniency to corporations that meet certain criteria after
However, he also announced that the DOJ would move away
learning of a possible FCPA violation. Under this policy, there
from this "all or nothing" cooperation requirement articulated
is a presumption of a declination of criminal prosecution and
in the Yates Memorandum.
50 percent off the low-end of the U.S. Sentencing Guidelines
(USSG) where a corporation: Under revised DOJ policy, corporations seeking cooperation
credit in a criminal case must identify all individuals who were
a) Voluntarily discloses a possible FCPA violation in a way
"substantially involved in or responsible for the misconduct at
that qualifies under USSG § 8C2.5(g)(1) as occurring
issue, regardless of their position, status or seniority, and
"prior to an imminent threat of disclosure or government
provide to the Department all relevant facts relating to that
investigation."
misconduct."6 Rosenstein emphasized that "[w]e want to focus
b) Discloses the conduct to the department "within a on the individuals who play significant roles in setting a
reasonably prompt time after becoming aware of the company on a course of criminal conduct. We want to know
offense," with the burden being on the company to who authorized the misconduct, and what they knew about it."7
demonstrate timeliness. This policy change recognizes that it is unrealistic to expect
c) Discloses all relevant facts known to it, including all corporations investigating alleged activities throughout the
relevant facts about all individuals involved in the violation company over a long period of time to identify every employee
of law. who played any role in the conduct. Rosenstein also
acknowledged that this "is particularly challenging when the
A company meeting the above criteria may still face criminal company and the government want to resolve the matter even
prosecution if aggravating circumstances are present. though they disagree about the scope of the misconduct."
Aggravating circumstances that may warrant a criminal However, Rosenstein made clear that companies that want to
resolution include, but are not limited to, "involvement by limit the scope of their investigation should discuss such limits
executive management of the company in the misconduct; a with the DOJ if they want cooperation credit. "If we find that a
significant profit to the company from the misconduct; company is not operating in good faith to identify individuals
pervasiveness of the misconduct within the company; and who were substantially involved in or responsible for
criminal recidivism."2 If a company does not meet all of the wrongdoing, we will not award any cooperation credit."
requirements of the policy, it still may get 25 percent off of the
low-end of the guidelines for cooperation.
On July 25, 2018, the deputy assistant attorney general,
Matthew S. Miner, announced that the DOJ would extend the
FCPA Corporate Enforcement Policy to successor companies
that learn of wrongdoing of a predecessor in the course of a
merger or acquisition or after such a transaction is complete.3
He explained that successor companies are often in a position
to "right the ship" and should be encouraged to do so.
Therefore, successor companies that take the steps outlined in
the FCPA Corporate Enforcement Policy will be rewarded for
doing so regardless of whether they learn of the problematic
conduct while conducting due diligence in advance of an
4 Hogan Lovells Rosenstein announced another important policy change at a Criminal Division will be more reluctant to impose costly and New York City Bar Association conference in May 2018. There, burdensome monitors, especially in cases where companies he explained that a new "no piling on" policy aims to avoid have undertaken remedial steps to reduce or eliminate the subjecting defendants to unfair duplicative penalties and source of problematic behavior and have demonstrated the enhance the DOJ's relationships with law enforcement effectiveness of their compliance programs. Companies may partners in the United States and abroad. The policy has four therefore be able to avoid the imposition of a corporate key features. First, federal criminal enforcement authority monitor by proactively making demonstrable improvements to should not be used against a company for purposes unrelated their compliance and internal control systems (all the way up to the investigation and prosecution of a possible crime (i.e., to to date the matter is resolved), changing their corporate culture persuade a company to pay larger civil or administrative surrounding the practices at issue, and taking remedial penalties). Second, DOJ lawyers and groups in different measures to address problematic practices or employees. departments or offices are to coordinate with one another to Although the long-term impact of the changes reflected in the avoid the unnecessary imposition of duplicative fines, Benczkowski memo are not yet known, the DOJ appointed only penalties, and/or forfeiture against a company and should one corporate monitor in an FCPA case resolved in 2018. strive for "an overall equitable result." That might mean crediting and apportioning financial penalties, fines, and forfeitures to avoid disproportionate punishment. Third, when possible, prosecutors should coordinate with, and consider the amount of fines paid to other enforcement authorities relating to the same misconduct. Prosecutors should evaluate several factors to determine if or when multiple penalties "serve the interests of justice in a particular case." These factors include: (1) the egregiousness of the wrongdoing; (2) statutory mandates regarding penalties; (3) the risk of delay in finalizing a resolution; and (4) the adequacy and timeliness of a company's disclosures and cooperation with the DOJ. Rosenstein noted that a company's cooperation with a different agency or a foreign government is not a substitute for cooperating with the DOJ. He specifically stated that the DOJ "will not look kindly" on companies that come to the DOJ only after making inadequate disclosures to secure lenient penalties with other agencies or foreign governments. He explained that in such instances, the department will act without hesitation to fully vindicate the interests of the United States. Finally, this past October, Brian Benczkowski, the assistant attorney general for the Criminal Division, announced a policy change relating to the appointment of corporate monitors during the resolution of DOJ criminal investigations. Under the Obama administration, the number of non-prosecution agreements (NPAs) and deferred prosecution agreements (DPAs) that imposed a corporate monitor as one of its conditions rose dramatically. Benczkowski issued a memorandum revoking an earlier memorandum on the subject penned by former Obama Assistant Attorney General Lanny Breuer.8 Benczkowski's memo states that despite the potential benefits of a corporate monitor, a monitor "will not be necessary in many corporate criminal resolutions."9 Benczkowski also stated publicly that the imposition of a monitor is "never meant to be punitive" and should be "the exception, not the rule."10 The Benczkowski memo identifies a number of factors that the DOJ should consider to determine whether a corporate monitor is needed and states that a monitor "will likely not be necessary" where a company's compliance program is shown to be "effective and appropriately resourced" when a matter is resolved.11 The factors outlined in the Benczkowski memo suggest that the
6 Hogan Lovells ADG Insights
ADG Insights: Bribery and corruption enforcement landscape February 2019 7
Enforcement policies in action in
the ADG industry
The DOJ's policy statements this past year consistently provided trips and gifts to various other foreign officials in order
emphasized that the department was committed to to obtain business. The resolution with the SEC credited UTC for
holding individuals accountable and to rewarding self-reporting the problematic conduct, cooperating with the
corporations that self-disclose, take remedial action, investigation, and taking remedial action including terminating
and fully cooperate with investigators with leniency. employees and third parties responsible for the misconduct. UTC
These policies, along with the newly stated policies to also reportedly enhanced its internal accounting controls and due
eliminate unfair "piling on" of penalties and avoid the diligence processes. UTC agreed to the SEC order without
punitive use of corporate monitors are reflected in the admitting or denying any violations of the law, and the DOJ
2018 resolutions of several FCPA investigation in the closed its investigation without pursuing any charges.
ADG industry.
In April 2018 an avionics company that designs and distributes
The DOJ publicly announced four declinations in 2018, in-flight entertainment systems and global communications
one of which involved Guralp Systems Ltd. (GSL), an services for airlines and airplane manufacturers agreed to pay a
earthquake technology firm.12 The DOJ explained in an US$137.4 million criminal penalty to resolve charges that it
August 2018 letter to GSL's counsel that it had reached violated the FCPA. The alleged violations related to payments the
this decision consistent with the FCPA Corporate company made to consultants, which allegedly did little or no
Enforcement Policy and in consideration of a number actual consulting work. One such consultant was employed by a
of factors including the company's voluntary disclosure state-owned airline and was involved in negotiating an
of the misconduct to the DOJ and the company's amendment to a lucrative contract between the airline and the
significant remedial efforts. In addition, the DOJ noted company.
that GSL is a UK company, is cooperating with a
parallel investigation by the United Kingdom's Serious Finally, in March 2018 Transport Logistics International Inc.
Fraud Office (SFO) for violations of law relating to the (TLI), a nuclear fuel transport company based in Maryland,
same conduct, and is committed to accepting entered a DPA and agreed to pay a US$2 million criminal penalty
responsibility for that conduct with the SFO. In what to settle charges that it conspired to violate the FCPA's anti-
may prove to be good news for corporate defendants, bribery provisions. The DPA follows three guilty pleas entered by
this resolution appears to reflect not only the principles individuals involved in the alleged bribery of an official at Joint
in the DOJ's FCPA Corporate Enforcement Policy but Stock Company Techsnabexport (TENEX), a Russian uranium-
also its desire to avoid "piling on" when other export company owned by the state-owned Russian nuclear
jurisdictions are investigating the same alleged energy company. TLI received sentencing credit for substantial
misconduct.13 cooperation with the investigation but not for voluntarily
disclosing the misconduct (the resulting US$21.38 million penalty
In September 2018 United Technologies Corp. (UTC) was reduced to US$2 million based on the company's ability to
agreed to pay US$13.9 million (US$9,067,142 plus pay). TLI also agreed to implement an enhanced compliance
interest in disgorgement and a US$4 million penalty) program and prepare annual reviews and reports on the program
to the U.S. Securities and Exchange Commission (SEC) for three years. As noted, the DOJ continues to emphasize the
to resolve charges that it violated the anti-bribery importance of prosecuting culpable individuals while offering
provision of the FCPA, the books and records provision leniency to companies in exchange for cooperation. In this case,
of the FCPA, and failed to maintain a sufficient system the company received cooperation credit and the DOJ brought
of internal accounting controls. The charges related in wire fraud and/or money laundering charges against individuals
part to allegations that UTC, through International who paid the bribes, against individuals who received the bribes,
Aero Engines (IAE) – a joint venture of Pratt & and against middlemen.
Whitney, a division of UTC – made payments to a
Chinese sales agent in an effort to increase sales in
China. The government alleged that IAE "disregarded
the substantial risk that the agent would use the
[payments from IAE] to make improper payments to
Chinese airline officials for confidential information
used to win the bid." The SEC investigation also
included allegations relating to payments made by Otis
Elevator, a UTC wholly owned subsidiary, to officials in
Azerbaijan and allegations that UTC improperly
8 Hogan Lovells Looking forward We expect that 2019 will see continued enforcement efforts aimed at curtailing corruption and bribery. U.S. officials are likely to build on their already strong relationships with their foreign counterparts, and we expect to see a continued increase in international cooperation. The DOJ's relaxation of the standard for receiving corporate cooperation credit may result in an uptick of negotiated resolutions of ongoing FCPA investigations. We also expect to see the number of resolutions that include compliance monitors continue to fall. Finally, this administration has embraced the use of sanctions prosecutions as a foreign policy tool so we expect the DOJ will not only continue to prosecute culpable individuals under the FCPA, but will also employ other criminal laws, such as sanctions violations and anti-money laundering laws, in conjunction with corruption and bribery investigations.
ADG Insights: Bribery and corruption enforcement landscape February 2019 9
Authors and contacts
Stephanie Yonekura Lillian S. Hardy
Partner, Los Angeles Partner, Washington, D.C.
T +1 310 785 4668 T +1 202 637 5884
stephanie.yonekura@hoganlovells.com lillian.hardy@hoganlovells.com
Rebecca H. Umhofer
Knowledge Lawyer, Washington, D.C.
T +1 202 637 6939
rebecca.umhofer@hoganlovells.com10 Hogan Lovells
Endnotes
1. U.S. Department of Justice, Justice Manual, section Brazilian government to resolve Brazilian law violations,
9-47.120, https://www.justice.gov/jm/justice-manual and by 10 percent for civil penalties Petrobras must pay to
the SEC. As a result, the effective U.S. criminal penalty will
2. Id.
be US$85.32 million.
3. Press Release, Deputy Assistant Attorney General
Matthew S. Miner Remarks at the American Conference
Institute 9th Global Forum on Anti-Corruption Compliance
in High Risk Markets (July 25, 2018) https://www.justice.
gov/opa/pr/deputy-assistant-attorney-general-matthew-s-
miner-remarks-american-conference-institute-9th
4. Press Release, Deputy Attorney General Rod J.
Rosenstein Delivers Remarks at the American Conference
Institute's 35th International Conference on the Foreign
Corrupt Practices Act (Nov. 29, 2018) https://www.justice.
gov/opa/speech/deputy-attorney-general-rod-j-rosenstein-
delivers-remarks-american-conference-institute-0
5. Id.
6. U.S. Department of Justice, Justice Manual, section
9-28.700—The Value of Cooperation, https://www.justice.
gov/jm/jm-9-28000-principles-federal-prosecution-
business-organizations?utm_medium=email&utm_
source=govdelivery#9-28.210
7. Rosenstein, supra note 4. Rosenstein also
acknowledged that the "all or nothing" approach
to cooperation introduced a few years ago was
counterproductive in civil cases. Therefore, when criminal
liability is not at issue, the DOJ attorneys will now have
increased flexibility to accept settlements that reflect
cooperation credit without meeting this rigid requirement.
Company internal investigations should focus on who
authorized the criminal conduct and what they knew, not
every conceivable person who was involved.
8. Memorandum from Brian A. Benczkowski, Asst.
Attorney General, To All Criminal Division Personnel,
Selection of Monitors in Criminal Division Matters (Oct. 11,
2018), available at https://www.justice.gov/opa/speech/
file/1100531/download
9. Id.
10. Press Release, Assistant Attorney General Brian A.
Benczkowski Delivers Remarks at NYU School of Law
Program on Corporate Compliance and Enforcement
Conference on Achieving Effective Compliance (Oct. 12,
2018), https://www.justice.gov/opa/speech/assistant-
attorney-general-brian-benczkowski-delivers-remarks-nyu-
school-law-program
11. Benczkowski, supra note 8 at 2.
12. U.S. Department of Justice, Declinations, https://
www.justice.gov/criminal-fraud/pilot-program/
declinations
13. The DOJ also demonstrated its willingness to
coordinate with enforcement agencies in other countries in
resolving its investigation of Petróleo Brasileiro S.A., more
commonly known as Petrobras. The DOJ entered a non-
prosecution agreement with the company through which
the company agreed to pay a criminal penalty of US$853.2
million. However, the DOJ offset this penalty by up to
80 percent to reflect the penalties Petrobras will pay the11 Hogan Lovells ADG Insights
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